Business Incorporation in the Philippines
Specialized Outsource Partners, Inc. and associates can help assess your future business in the Philippines and determine the best investment vehicle for your business. We will assist you in your business incorporation procedures, planning, and business registration with relevant agencies, such as the Philippines SEC, DTI, BIR, SSS, Philhealth, and PAG-IBIG. Incentives such as income tax holidays and special tax regimes are available to foreign companies who invest in activities that significantly contribute to national industrialization and socio-economic development, or are considered export-oriented enterprises. These businesses must meet eligibility requirements set by the government and typically register with investment-oriented government agencies in the Philippines, such as PEZA and BOI.
Incorporation Options in the Philippines
- Fully foreign-owned Branch Office
- Fully foreign-owned Representative Office
- Fully foreign-owned Domestic Corporation (subsidiary)
- 60/40 owned Domestic Corporation
Incorporation with Philippines SEC – Securities & Exchange Commission
Foreign investors usually start and do business in the Philippines through a Domestic Corporation or a Branch Office. Using either entity has its advantages and disadvantages. Corporations are more administratively feasible. Branches of a foreign corporation, while more advantageous tax-wise, are always considered fully foreign-owned and cannot be used if the activities to be undertaken are included in the Foreign Investment Negative list or FINL. The FINL mandates percentages Philippine equity participation for businesses requiring the same by law or the Constitution. Corporations on the other hand, can accommodate the necessary Philippine ownership.
Business incorporation in the Philippines requires a minimum of 5 incorporators, each of whom must be actual persons and who must hold at least a single share in the company. Majority of the incorporators must be Philippine residents. Corporations must have between 5 and 15 directors (or trustees if a non-stock corporation), each of whom must have at least one qualifying share of stock. Majority of the directors (or trustees) must reside in the Philippines. All Domestic Corporations (those incorporated in the Philippines) must obtain their licenses form and register with the Securities and Exchange Commission to incorporate their new company.
The SEC requires prospective corporations to reserve and register a name, submit proposed Articles of Incorporation and By-Laws which are compliant with the requirements of the Corporation Code of the Philippines, and prove they have the minimum capitalization requirements for the industry it will engage in. Under the Foreign Investment Act, the minimum paid-up capital requirement for corporations considered Domestic Market Enterprises (DMEs) where foreign equity exceeds 40% is US$200,000. This amount must be remitted into the Philippines prior to incorporation. The paid-up capital requirements do not apply to DMEs that are export-oriented or involve advance technology and will employ at least 50 employees.
If the company exports goods or services or generates revenue from abroad comprising more than 60% of its gross sales it can be fully foreign-owned, and can be considered an Export Enterprise under the Foreign Investments Act. Both branch and domestic corporation options considered Export Enterprises can be registered with as little as P5,000 in paid-up capital. However, most banks require P25,000 – P50,000 to open a corporate bank account.
A Branch of a Foreign Corporation doing business in the Philippines must obtain a license to do so from the SEC upon incorporation. The foreign corporation’s head office must prove its legal existence in its country of origin, its financial solvency, and its authorization to set up a branch in the Philippines. The Branch must appoint a resident agent in the Philippines who will be in charge of receiving summons and legal processes. This allows the SEC and other entities to obtain jurisdiction over the foreign company.
Starting and setting up a branch normally involves remitting US$200,000 as a capital investment. Branches engaged in activities involving advanced technology, or employing at least 50 direct employees, are required to inwardly remit a reduced amount of US$100,000 as assigned capital. Export-oriented branches are not subject to minimum assigned capitalization requirements. Special rules apply for certain types of branch operations. It is advisable for companies to register their remittance with Central Bank of the Philippines or Bangko Sentral ng Pilipinas and obtain a BSRD.
The failure of a foreign corporation to obtain a license to do business bars the entity from filing suit in Philippine courts. The issuance of a certificate of incorporation from the SEC signifies the commencement of corporate existence and juridical personality of a particular company. Before commencing operations in the Philippines, businesses must also register with the Bureau of Internal Revenue (BIR), the Social Security System (SSS), the Home Development Mutual Fund (HDMF), the Philippine Health Insurance Corporation (Phil-Health), and the local government unit where its principal office will be located.